Budget Alert 2013
This Budget Alert is based on the Budget Speech presented to the House of Commons by the Chancellor of the Exchequer, the Rt Hon George Osborne, on Wednesday 20 March 2013 and on related Government announcements.
It is hard to remember a year when tax has had quite such a high public profile. Much of this is the result of the ongoing debate on ‘tax fairness’ by the Public Accounts Committee, which has certainly had the effect of raising the temperature considerably. Even the Prime Minister was moved to join in, urging multinational companies to ‘wake up and smell the coffee’. And several national newpapers have been keen to highlight instances where taxpayers have been perceived not to be paying their fair share of tax.
In line with our practice over the past two years, we again conducted a survey of tax professionals prior to this year’s Budget. 56% of the respondents were from companies with a turnover of over £1bn and 57% were heads of tax. 57% said that the competitiveness of the UK tax regime had been improved by the Coalition Government’s policies (with the lowering of the mainstream corporation tax rate and the new CFC regime for companies being singled out for particular praise), but against that 67% said that uncertainty around the future of the tax system, especially in light of the debate on ‘tax fairness’, was the biggest deterrent to growing their business in the UK. Again, 67% felt that a 20% rate of corporation tax would be sustainable in the longer term. And for the third year running, reducing employers’ national insurance contibutions came top of the respondents’ wish lists of measures to enhance their business or UK productivity.
So has the Chancellor been listening? On some of the major issues, it would appear that he has. In a speech lasting just under an hour, he reiterated that ‘our nation is in a global race – competing alongside new centres of enterprise around the world and jobs that can move anywhere.’ He announced that the mainstream rate of corporation tax would indeed be reduced to 20% with effect from April 2015. This is the lowest business tax rate of any major economy in the world, and is the first time that the UK’s main rate and small profits rate have coincided since 1973. He has therefore delivered on the ambition he set out in last year’s Budget and reinforces the message that Britain is open for business. Combined with confirmation of the general anti-abuse rule (or GAAR) and the UK’s commitment to participating in the OECD’s project on international taxation, the Chancellor is making it clear that the UK is a competitive place to do business, but that he expects all parties to pay their fair share. Hopefully this move, and the increase in the ‘above the line’ R&D tax credit to 10%, will help to allay some of the fears of those who responded to our survey.
The ‘rabbit out of the hat’, albeit not going quite as far as many of our respondents would have liked, was the decision to introduce the Employment Allowance, which abolishes the first £2,000 of national insurance liabilities for all employers from April 2014. The principal beneficiaries will be small and medium-sized enterprises, with the Chancellor predicting that one-third of all employers will pay no ‘jobs tax’ whatsoever.
On the personal tax front, the Chancellor took great delight in announcing that the personal allowance would increase to £10,000 from 6 April 2014, one year earlier than had originally been targeted. This should give him scope to go still further before the next general election.
There is the usual plethora of measures aimed at tackling tax avoidance and collecting tax debts, expected to bring in some £5bn, and so the overall cost of the policy decisions is broadly neutral for the fiscal finances. Given the constraints of the economy, the Chancellor may well feel that this was indeed a magical performance.
We begin with EY ITEM Club's economic report, analysing the implications of the Chancellor's proposals.